RIM Pacific Business and Industries Vol. XXIII, 2023 No. 88,
India-Russia Economic Ties Are Strengthening Rapidly -Especially in Terms of Crude Oil Trade
As the international situation becomes more complex, India is strengthening its foreign policy stance of dealing with other countries impartially, with the aims of maintaining its autonomy/ independence and maximizing benefits to itself. While India is deepening its ties with the G7 (major industrialized countries) with its policy toward China in mind, it is also rapidly increasing its imports of cheap Russian crude oil, going against the G7’s economic sanctions against Russia. Background factors behind India’s importing of Russian oil despite frowns from the G7 are that 1) India has various economic and social problems caused by its low income level, while its economic structure is vulnerable to the adverse effects of rising oil prices, and 2) it has become increasingly assertive as a major power due to its steadily growing presence in the world economy, and believes that its position and arguments will ultimately be accepted by the G7.
Russia’s share of India’s crude oil imports jumped from 2% in 2021 to over 20% in early fall 2022, making Russia India’s largest supplier. Along with low prices, another reason for India’s rapid increase in imports of Russian oil is its growing need to diversify sources of procurement. Because of the G7 economic sanctions against it, Russia is expected to face difficulties ahead in procuring goods such as automobiles, general machinery, and electronic equipment, and is switching its procurement sources from the G7 to China and India. The Indian government aims to translate this trend into the development of its own manufacturing industry and expansion of exports.
Looking ahead, the view should be that the development of India-Russia economic relations will see a series of bumps (i.e., regressions) centered on the oil trade. Given the relative cheapness of Russian crude and the stable supply of Middle Eastern crude, India is likely to adjust the proportion of oil it imports from Russia in a flexible manner. For commodities other than crude oil, the pace of bilateral trade expansion is expected to remain moderate, as the low export competitiveness of India’s manufacturing sector and uncertainty surrounding Russia’s politics and economy will constrain business expansion.
As the Indian and Russian economies move closer together, the effectiveness of G7 economic sanctions against Russia will be hampered, and this could prolong the global division over Ukraine. If India’s growth rate can be boosted by the tailwind of production transfers to “neutral countries,” while the economic growth rates of the two opposing camps decline, India’s presence in the global economy should increase rapidly. However, if India is perceived by the international community to be partly responsible for the prolonged division of the world, it risks creating new fissures between India and other countries, which could actually reduce India’s growth rate.